The Indian auto industry that is facing a drawback may see an improvement in its situation as the country's PSU banks are planning to raise their auto finance portfolio in a ‘cautiously aggressive' manner in order to close the gap created by private banks. Almost all major private sector banks have either raised the interest rates or decreased their exposure in the area.

Although RBI has stepped in to ease liquidity in the economy, the auto loan segment does not seem to have benefited from the measures. In fact private sector banks have become cautious in their vehicle lending due to the rising interest rates and delinquency levels. Their cautious approach has affected genuine buyers in the market.

T.M. Bhasin, Executive Director, United Bank of India said: "Some private banks have decided to reduce their exposure to vehicle finance and we are trying to capitalize on this. However, we will adopt a ‘cautious but aggressive' policy in order to ensure that we do not burn our fingers."

Union Bank of India plans to move its attention towards their vehicle finance portfolio during the ongoing festive season. "We are focusing on customers who have a salary-linked account with our bank. This will ensure that the loan extended is secure," said Mr. Bhasin.

Another PSU bank, Allahabad Bank is also on its way to raise its car loan portfolio by 20 percent in 2008-09. A senior official from the bank said, "There is a greater thrust on vehicle finance and we are looking at tying up with manufacturers." On September 2008, the bank's total vehicle finance portfolio was noted at Rs 300 crore.

The country's largest lender, State Bank of India is also going well with its car finance portfolio. It has maintained its position of being one of the largest players in the segment and is not affected by the reduced exposure of private banks.

A senior official at State Bank of India said, "We have been doing well in vehicle finance. Both our products and delivery system are moving down well with our customers." The bank is aiming to grow its car finance by 33 percent in 2008-09.

Maruti Suzuki India Limited, a publicly listed Indian automaker believes that PSU banks have better connection with their customers and it is easier to lend to these customers as the banks are aware of their creditworthiness.

A senior official at Maruti Suzuki said: "Public sector banks have a wider reach and a long association with their customers. They therefore have the track record of their customers. This makes it easier to lend and also ensure that the customer does not default on his payments. Moreover, private banks lack transparency and have a multiple interest-rate structure which acts as a deterrent for some customers."

Maruti Suzuki has had a longstanding tie-up with SBI and also tied up SBI subsidiaries. The company is also planning to join with Punjab National Bank said the official from Maruti.

The liquidity crisis has led banks to rein in retail financing that has also affected auto loans. Car loans account for 70 percent of consumer auto purchases now, down from 85 percent year ago.